The ongoing buyback offer by Just Dial has pushed its stock futures to trade at a 10% discount to the shares, opening a reverse arbitrage opportunity for traders.
In this strategy, traders could sell the shares and simultaneously buy the stock futures to pocket the Rs 70 spread till the expiry of the March series of derivative contracts when the spot and futures converge. Since the trader sells this spread, at convergence when it shrinks to zero, his gain will be 9.28% in a month’s time. On Friday, the last traded price of the share was Rs 759.5 while that of the March futures was Rs 689.
The effect of selling the shares and buying the futures throws up two possibilities — that the shares will fall more sharply than the futures or that the futures would rise more sharply than spot, wiping out the difference. Then the futures and spot price converge.